Forecast Is for "Bad Craziness"

That's right. We're having one of those news days that cries out for the mad prose stylings of Hunter S. Thompson himself.

Unfortunately, you'll have to settle for me.

So let's get this party started right by inviting in the Crown Prince of Crazy himself, the Dear Leader Kim Jong Il and the People's Glorious Revolutionary Atomic Mushroom Brigade! South Korea has announced that they will be conducting a live fire artillery drill on Yeonpyeong Island from December 18-21. The response from North Korea Crazy? A neopolitan ice cream of insanity, offering three distinct flavors for the price of one. They are now accusing the south of attempting to "kick up hysteria of war of aggression against the DPRK"[1], they have put forward the claim that the reason the south is doing this is to undermine "the progress made in the June 15 era of reunification" and to derail "the dialogue and cooperation between the north and the south", and they are warning[2] that the live-fire exercise "will play out a more serious situation than on November 23 in terms of the strength and scope of the strike"[3].

There is some speculation that all of this is just a way to improve the north's position when negotiations begin again. Rather like the way a small child attempts to improve his position regarding the acquisition of a toy by pitching a tantrum. Only with high explosives. And death.

China, which is no doubt banging its collective head on its collective desk over the antics of its crazy eastern neighbor, has hit a 28-month high for consumer inflation. It's up 5.1% from November 2009 (mostly on food prices), about 210 bps higher than the 3% target they had for 2010 and 110 bps higher than their 2011 goal. This, of course, is considered an omen of rising reserve requirements and interest rates[4].

Spinning the globe around to Europe, Moody's has cut Ireland's credit rating from Aa2 to Baa1, putting them on the same level as Russia and Lithuania. That's still investment grade, but you almost have to throw the air quotes when you say that. Meanwhile, on day two of the EU summit to create a permanent financial safety net for the euro zone, leaders refused temporary steps such as increasing the size of the EU bailout fund or using the bailout fund to buy bonds. European traders pouted and demanded that the summit offer more short term guarantees, and possibly milk and cookies before bed.

On the positive side for Europe - or, at, for the two-time would be rulers of Europe - the Ifo Business Climate Germany is out. The business climate index, the business situation index, and the business expectations index are all showing an across-the-board 60 bps improvement. So, overall, businesses are doing well and expecting to continue to do well in Germany.

Closer to home, the House passed the tax "compromise" on a 277-148 vote. The IMF Managing Director is pleased, although I'm not certain why Reuters felt the need to bring his opinion into the article[5]. In possibly unrelated news, Senate Democrats also threw in the towel on passing a budget, and agreed to a temporary funding measure.

So that's some of what's driving the markets around. Fear and madness and bad craziness. And four witches.

[1] No, really. That's the official English translation.

[2] "Warning" as the word is defined in North Korea, means "kicking someone in the teeth out of nowhere, and then threatening them with a switchblade if they try to punch back".

[3] For good measure, they also threw a diplomatic bone to the US: "The state of armistice is persisting on the Korean Peninsula and danger of war is not defused there because of the U.S. hostile policy toward the DPRL and its wild ambition for aggression."

[4] And you don't even need to visit Delphi on the seventh of the month for that one.

[5] Although the CIA World Factbook confirms that our public debt as a percentage of GDP is actually 30 bps higher than Spain's, so maybe we should be courting the IMF's good graces now...